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How debt discharge and reaffirmation agreements work

The bankruptcy process is good for many things, but one of the most important aspects of this legal step is the discharge process. This is where your unsecured debts will be eliminated through the bankruptcy. You may think that when these debts are secured that there are no strings attached. However, you need to be aware that critical pieces of property that have debt could be taken back by the lien holder after the debt is discharged.

In practice, this means that if you have a car loan and that debt is discharged through bankruptcy, then the bank (or whoever holds the lien) will have the ability to seize the asset, since they hold the rights to the asset.

So the big question then is: how do you protect yourself when a debt is discharged but you want to keep the asset associated with the discharged debt? This is where a "reaffirmation agreement" can be very handy for the bankrupt individual.

What this agreement does is it allows the discharge process to go through unimpeded, but then it reaffirms the loan that was in place between the lien holder and the bankrupt individual. With the debt discharged and your finances cleared up, it will be easier for you to handle the loan, and the lien holder may want to continue this relationship with you.

As always, if you are considering a bankruptcy or need help with a reaffirmation agreement, then you should consult with an attorney that has experience with both of these critical legal topics.

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William T. Peckham
1104 Nueces Street, Suite 104
Austin, TX 78701
Phone: 512-487-7604
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